The main objective of this paper is to study the performance, emissions, and combustion characteristics of the diesel engine using ethanol-biodiesel-water microemulsions. The results indicated that although the microemulsions exhibited similar combustion stages to that of biodiesel, some differences were observed between biodiesel and microemulsions. Biodiesel showed an earlier start of combustion at all engine operating conditions, while the ignition delays of the microemulsions were longer. The peak cylinder pressures of the microemulsions were lower at low engine loads, and almost similar to that of biodiesel at medium and high engine loads. The peaks of heat release rate of the microemulsions were almost similar to that of biodiesel at low engine loads, but slightly higher at medium and high engine loads. The combustion durations of the microemulsions were longer at low engine loads and speed, but shorter at medium and high engine loads. For the microemulsions, there were slightly higher brake specific fuel consumptions (BSFC), while lower brake specific energy consumptions (BSEC). Drastic reduction in smoke was observed with the microemulsions at high engine loads. Nitrogen oxides (NOx) emissions were found slightly lower under almost all engine operating conditions for the microemulsions.